Archive - Apr 7, 2011 - Story

Lights out

The ongoing total decimation of the dollar is sending everything that still has value through the roof. Case in point: WTI which just passed $111 for the first time since 2008. And with Brent waiting with open arms at $125 it is only a matter of time before gas prices in the US will make the teleprompter advise anyone who doesn't have Discount Window access to trade in their inline 4 for the "Wealth Effect." In the meantime, a centrally planned China was just forced to hike gas prices for only the second time in 2011 (lucky them): "April 7, China, Asia’s largest oil consumer, raised retail prices of gasoline and diesel for the second time this year, starting Thursday, as international crude oil prices continue rising, China Business News reported on Thursday. The benchmark retail price for gasoline will rise by RMB 500 a metric ton on April 7 and that for diesel will increase by RMB 400, the National Development and Reform Commission (NDRC), said on Wednesday. According to several energy information institutions, the retail price of 90# gasoline will rise by 5.63% to RMB 9,380 per tonne, and that of 0# diesel will gain 4.9% to RMB 8,530 per tonne, the paper said." Bottom line - pretty soon the entire WTI curve will be in backwardation.

Just out from Reuters:

WATER LEAK FOUND AFTER LATEST QUAKE AT JAPAN'S ONAGAWA NUCLEAR PLANT BUT NO CHANGE IN RADIATION LEVELS-NHK

WATER LEAKS AT ONAGAWA NPP FROM REACTOR 1,2 SPENT FUEL POOLS

Onagawa is the plant which as we disclosed earlier experienced an almost critical power failure following today's new earthquake off the Sendai coast. One wonders just how much "undisclosed" news will start leaking. Surely just as the shut down of America is sending futures surging, this news should levitate the Nikkei by a few percent.

Following news that an 11th hour attempt to resolve the budget impasse between Obama, Reid and Boehner has failed, the dollar, and all related carry pairs, are getting obliterated. At last check the EURUSD was north of 1.4350, while all Yen funding pairs rose back to intraday highs. Which in this bizarro
world also means that futures are now at highs: yes - a government shut down is bullish for stocks. The good news for those who continue to believe, what is only being realized by others, namely that the dollar's days are numbered is that silver has just touched $39.85: a fresh post Hunt Brother high. Gold is following suit.

A somewhat contrarian view on commodities from Global Tactic Asset Allocation: "Most commodities remain deeply overvalued. As with other assets it does not really matter in the short-term (as long as the trend is positive) but it is paramount for longer-term projections. We have little doubts that commodity long-only who buy to hold are going to experience a >50% drawdown (from current levels) on their industrial metals, crude oil and agricultural positions sometimes in the next 24 months. Demand has been artificially boosted by China strategic reserve building, infrastructure intensive fiscal stimulus, booming demand from the rest of emerging economies and, as the trend persisted, by trend followers and money managers new attraction to the sector (you know it is not correlated so you should buy them to diversify your portfolio... sorry it WAS not correlated...). The introduction of physically-based ETFs is not helping in this matter as it represents a big short-term increase in marginal demand especially when the Fed is still busy implementing QE2."

General Tommy Franks, the rather straight-talking former commander of the war in Afghanistan way back in 2001, once described US defense policy wonk Doug Feith as “the dumbest fucking guy on the planet.” Feith, a bumbling architect of the failed Bush Doctrine, now has an intellectual match in Christina Romer, the former Chairwoman of Barack Obama’s Council of Economic Advisors. Romer appeared Thursday on the Daily Ticker, leaving no doubt that she should be the undisputed frontrunner for the Nobel Committee’s much anticipated Doublethink Prize. Warning, do not watch this video while eating: food projectile WILL permanently damage your computer.

...is up by $51 billion in two weeks. But, once again, before people freak out that this is some crazy scheme to flood the market with money (nothing crazy about that scheme: it has been going on for 2 years), keep in mind: this is merely the delayed catch up of the SFP program unwind and the ongoing increase in Treasury holdings by the Federal Reserve Capital, ULC. Nonetheless, it is disturbing that the gradual phase out in the build up of the Adjusted Monetary Base, exclusively due to the rise in Excess Bank Reserves, is still proceeding at a 100%+ CAGR.

The natural step in the US-led invasion of Libya's oil fields, which could be seen from a mile away and as was discussed on Zero Hedge previously, is about to unfold with the proverbial silver-tipped bang. Courtesy of Army Gen. Carter Ham we learn that the Nobel war prize winner "may consider sending troops into Libya with a possible international ground force that could aid the rebels, the former U.S. commander of the military mission said Thursday, describing the ongoing operation as a stalemate that is more likely to go on now that America has handed control to NATO." Nothing like a little land war in Asia, er, Africa, to distract the peasantry from an insolvent government which can't legally issue any more debt on top. Make no mistake though - this is all about "humanitarian intervention."

After reverse engineering virtually every product known to man, the Chinese have now applied the same skill to the only component of their military that was so far missing: an aircraft carrier. Earlier today, Xinhua revealed the first official pictures of what will soon be China's first aircraft carrier, now expected to enter operation by the end of the year. As the NYT reports: "The photos of the carrier, the Varyag, which China bought from the Ukraine in 1998, appeared Wednesday on the Web site of Xinhua, the state news agency. It was the first time that Xinhua had given visual evidence of the carrier project, which is widely seen as a linchpin of China’s military modernization and naval ambitions. The carrier is being rebuilt in the waters of Dalian, a coastal city in eastern China. Xinhua cited a military analysis magazine based in Canada, Kanwa Asian Defense Review, as saying that the ship will be ready to sail this year. The fact that Xinhua used that information in a photo caption appeared to be an official endorsement of that view."

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 07/04/11

It’s no secret that the silver market is red hot. As I write, silver American Eagles and Canadian Maple Leafs are sold out at their respective mints. Buying in India has gone through the roof, especially noteworthy among a people with a strong historical preference for gold. Demand in China continues unabated. Silver stocks have screamed upward. So, as an investor looking to maximize my profit, I have a natural question: is the silver trade getting too crowded, meaning we’re near the top? Have the masses finally joined the party such that we should consider exiting? After all, it’s not a profit until you take it, and you definitely want to sell near the top.

David Blanchflower, professor of economics at Dartmouth College and a former policy maker at the Bank of England, was on Bloomberg earlier, discussing the flawed ECB decision to hike rates by 25 bps, just a day after Portugal went bankrupt, and calling it quite right, "a pretty big mistake." Blanchflower understandably compares today's move to the ill-fated hike in 2008 when the ECB was forced to promptly reverse course and loosen substantially when the bottom fell out of the market, although in reality today's situation is nothing like 2008 when one accounts for the EFSF which is essentially a Central Bank within a Central Bank: a pseudo pre-funded SPV whose only job is to provide liquidity to those countries in the block who are insolvent (and in the process keeping peripheral inflation rampant), while at the same time tightening liquidity in the core. In essence the ECB has been split in two: a good central bank and a bad central bank. The problem is the funding for the bad central bank is contingent on Germany which is becoming increasingly disenchanted with the whole failed Euro experiment, yet which is unable to leave the EUR since the DEM would surge by orders of magnitude to account for the country's strong economy, thereby burying the export sector. That in a nutshell is the summary of the tensions in Europe. And yes, Blanchflower is spot on that this house of cards construct held together by spit, superglue and prayer will all fall apart very soon.

The recovery is self-sustaining, technology will save us, the U.S. economy is resilient, don't fight the Fed, the stock market is on a permanently high plateau thanks to the Bernanke Put, blah blah blah. Check back in in 15 months and let's see who's right: the "The recovery is self-sustaining, stocks are on a permanently high plateau" crowd or those of us looking at the leverage being piled on leverage.

Everyday Congressman Paul Ryan steals a few headlines with his plan to balance the Federal Budget. Ryan's plan is to cut $650 billion a year from the deficit.

To get a better feel for what this really means, let's take a few steps back to the beginning of the credit crisis. To rescue banks and stimulate the economy, the budget deficit increased from $455 billion in 2008 to $1.416 trillion in 2009. This deficit funded TARP and a variety of stimulus efforts from Cash for Clunkers to Energy Efficient Appliance credits.

A quick glance at the headline of the just released Consumer Credit data may leave one with the impression that things are quickly improving for the US consumer. After all, at a monthly change of $7.6 billion in total consumer credit, this is not only a big beat of expectations of $4.7 billion, but is the highest monthly increase since June 2008. Time to declare an "all clear" for the consumer who based on this misleading data is now aggressively releveraging? Absolutely not. In fact, the Fed threw the kitchen sink in manipulating this monthly data. First, it pull page 1 from the BLS SOP: it revised the January increase from $5.01 billion to $4.44 billion, thereby making the change bigger. Second, the all importnat revolving credit number was once again negative at ($2.7) billion. This is the second consecutive drop in revolving credit after a brief pick up in December when consumers bought Made in Taiwan trinkets with their credit cards, and is the 29th out of 30 consecutive declines in the category. Offsetting this drop was the surge in Non-revolving credit: i.e., loans given by the US government and Fed-backed banks for car purchases and student loans. Next, all these numbers were seasonally adjusted: the NSA number actually plunged by $16 billion, from $2.433 trillion to $2.417 trillion. And the piece de resistance: the only source of funding in February, wait for it, was the federal government, as all other traditional sources of credit continue to retrench.